Mohamed Abdel SalamChairman of MCDR CompanyAMEDA 1st Leadership Forum

April 27- 29, 2009 in Alexandria

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Introduction to Short Selling

Short Selling

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• A New Leveraged Vehicle for Securities Trading being Introduced in Egypt.

• Definition of the system: The “Securities Lending System” is a fund holding balances of securities listed on the Stock Exchange and owned by an investor (lender) desiring to lend them , and an investor (borrower) desiring to borrow for sell.

Why Introduce Short Selling?

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Creates a “better” marketplace More liquidity and smaller spreads

Good for Customers Opportunity to profit when prices decline Increased trading activity

Leverage Flexibility Interest income for Lenders

Good for Custodians and BrokersMore activity = more commissions and feesTraditionally, interest income –

Customer cash deposits (for brokers)Customer lending – (for custodians)

Important definitions

Borrowing Customer: is the Seller Customer in the operation subject-matter of lending against a securities borrowing contract.

Borrower’s broker: the brokerage company authorized to practice the custodian activity which has executed, in its capacity as proxy of the Seller Customer in the transaction, the operation of selling borrowed securities.

The Company: Misr for Central Clearing, Depository and Registry CompanyLender: The investor owner of the securities registered under the loaning system.

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Advantages of Short Selling

• Doubling the selling volume. ( Borrowed securities )

• Increase the revenues (selling the borrowed securities )

• Interest income for Lenders• All the rights and dividends

reserved for the lenders• Flexibility in redemption

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Calculation of the amount of cash collateral shall be on the basis that the total cash collateral equals 125% of the market value of the borrowed securities as per the closing quotation on the settlement day

Cash Collateral

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Recording & SendingLending order

Contracting & Creating the lending pool

The lending file

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Waiting list

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Short Selling

xxxxxxxx

xxxxxxxx

MCDRCompany

lending

order

Creating the pool INVESTOR

Custodian

Broker

Sign agreement

Sign

ag

reem

ent

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Creating the waiting list of the lenders

Custodian

Broker

1

3

Lending systemMCDR

Reaching theMax quantity of

Lending sec.

Adding to the Main lending

list

Adding to the waiting

list

Yes

No

Recording & SendingLending order

lending

order

Sign agreement

Sign

ag

reem

ent

INVESTOR2

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Shot Sell Pool

Use the Pro-rata systemto let lenders participate

in every borrowtransaction

First in - First serveWaiting List

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The Borrowing stage

Broker

L & B system

Lending list

Borrowerlist

BlockingOrder of the

Borrowing quant.

Quantity approved a sell order sent

MCDR

StockExchange

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3

4

Balance is not enough& Blocking

was cancelled

Borrowing order

+ Collateral

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Book Keeper

Redemption of Borrowed Shares

MCDR

2

3

Broker bank

Cash collateral

1

redemptionorder

TransferQuantity

BorrowedBroker

L & B system

Lending list

Borrowerlist

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Selected Securities

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Same securities for Intra day trading and short selling

Liquid securities

Securities selected from EGX active list.

Approved by CMA

-10% of the issued shares can be put in the pool from each company. - 5% the maximum the lender can put in the pool.

- 2% the maximum the borrower can borrow from the pool.

- 5% the maximum the broker can borrow to his clients from the pool.

The percentages used in the short sell system

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Who will compensate the Lenders with the rights given by the Issued companies ?

New BuyersIssuers Company

The names of the new buyers will appear in the issuer books to give

them the rights

LendersBorrower

The borrowers are the one who will compensate the lenders by the equivalent

value of the rights

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How MCDR will generate revenues to the lenders ?

Borrower

Bank

Lenders

Collect collateral versus the

borrowed shares for 125%

Invest the collateral

A revenues are generated30%

70% Divide therevenues

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Thank You

Website : www.mcdr.com.eg

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